What You Must Do During A Stock Delisting

  Author: Kundan Kishore

Companies list in stock market when, among other things, they like the idea raising capital from their equity from the general public. But there could be times when some companies whose shares you can buy and sell in the stock markets, decide to get out of the stock markets. This is basically what the “delisting” process is all about. 

Why companies delist Companies generally delist when they want to expand or restructure. Delisting may occur due to acquisition by other companies. Or, the promoters may simply want to raise their stake.

Delisting can be a voluntary decision where a company pays investors and removes its securities from the exchange. There could also be a forced delisting by stock exchanges on finding non-compliance of their rules by a company. Here, we will restrict ourselves to voluntary delisting. When a company decides to it offers what is called a delisting offer price i.e. the price the company at which it is willing to accept its shares. Usually, it is at a premium price compared to the current market price leading. Often, this leads the stocks to rally.

Delisting price Often, it is not the company that decides the delisting price but the investors through a book building process. While investors can quote the price they want, the promoter or the offerer has the freedom to accept or reject the final price. Thus investors start speculating what price the acquirer will be finally willing to accept which can lead to wild swings in stock prices. Be forewarned that the stocks may crash if the delisting plans don't fructify.

Tax treatment of sales proceeds When an investor sells shares in delisting, the transaction is done off the exchange. So, any profit is considered as normal capital gains. Also, after the stock delists from exchange the company gives shareholders one year to tender their shares.  Thus, one need not hurry to offer his or her shares in delisting as one can tender his shares even after the offer is complete.

What to do on forced delisting In case of forced delisting, exchanges set the date after which the stocks become unavailable on the exchanges. Thus, investors are better selling off between those dates rather than keep holding on to illiquid stock for year or may be for life.

It is worthwhile pointing out that an individual investor mostly has little choice but to accept the terms offered during delisting. Of course, there are high net worth individuals (HNI) who manage to get together with other HNI individuals to negotiate better terms with the company.